Employment Law Daily Ten Ninth Circuit judges dissent in failed challenge to DOL’s tip pool regulation
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Thursday, September 8, 2016

Ten Ninth Circuit judges dissent in failed challenge to DOL’s tip pool regulation

By Brandi O. Brown, J.D. Demonstrating deep divisions within the Ninth Circuit, ten judges dissented from the denial of a petition for rehearing en banc of a panel decision ruling that the Department of Labor was not foreclosed from promulgating a rule extending the FLSA's tip pooling restrictions in spite of an earlier circuit decision to the contrary. The dissent followed a vote on the matter by all nonrecused active judges where the petition failed to achieve a majority (Oregon Restaurant and Lodging Association v. Perez, September 6, 2016, per curiam). As described in an earlier edition of the Employment Law Daily describing the Ninth Circuit panel’s decision at issue here (See DOL had authority to promulgate tip-pool rule change, February 23, 2016), in 2011 the DOL revised its tip pool regulation so that the restriction applied to all employers, regardless of whether they take a tip credit. It did so in response to the Ninth Circuit's holding in Cumbie v. Woody Woo, and notwithstanding comments the agency had received earlier that suggested that section 203(m)’s tip pooling restrictions could be construed to apply only to employers that take the tip credit. Rehearing denied. The rule change was challenged in separate cases. Both district courts concluded that the DOL lacked authority to make the rule change as a result of Cumbie and, moreover, that the substance of the DOL’s revision contradicted Congress’s clear intent. In the panel decision the Ninth Circuit reversed, rejecting the lower courts’ application of Cumbie as well as their Chevron analyses of the agency’s action. Judge Smith dissented. Subsequently, the panel majority voted to deny the petition for panel rehearing. After the panel recommended denial of the petition for rehearing en banc, as well, a judge requested a vote from the full court. The matter failed to receive a majority of votes and the petition was denied. The order denying rehearing was amended to reflect the subsequent activity and to include a dissent from the denial of rehearing by Judge O'Scannlain, with whom nine other judges joined. Judge O'Scannlain's dissent. One of Judge O'Scannlain's major concerns was that the panel majority decision reads Ninth Circuit "precedents out of existence." Describing the panel majority's decision as "mighty fancy footwork" to get around Cumbie, Judge O'Scannlain averred that the earlier decision has caused it to "stumble[] off a constitutional precipice." Although the panel majority acknowledged that Section 203(m) did not restrict tip pooling practices of employers who do not take tip credits, the holding in Cumbie, it nonetheless perceived a "crucial distinction between statutory language that affirmatively protects or prohibits a practice and statutory language that is silent about that practice." In other words, Judge O'Scannlain explained, the majority concluded that because the section does not explicitly protect the tip pooling practice in question, the DOL could prohibit it because the gap left room for agency discretion. Such a conclusion, Judge O'Scannlain lamented, "is a profoundly misguided understanding of administrative law" and a "caricature of Chevron." Moreover, the majority's reliance on Christensen v. Harris County, and Judge Souter's concurrence therein, was misplaced, according to the dissent. That decision "says only what everybody already knows: if a statute can reasonably be read either to permit or to prohibit a given practice, then the agency has discretion to choose which reading to enforce." In this case, however, the statutory text could not be read in any way other than what was described in Cumbie and the agency had no power to enlarge the statute. Dissent concerned about circuit splits. The second of Judge O'Scannlain's concerns was that the panel majority decision creates a circuit split. Sister circuits, the judge explained, have "roundly and forcefully repudiated the specious theory" adopted by the panel majority that would allow agencies to fill gaps in this manner. The panel majority, the judge explained, failed to produce "a citation to a single case endorsing the extravagant theory of executive lawmaking our court adopts today." Worse yet, according to the dissenting judge, the majority panel's decision has "created another split with the Fourth Circuit" and set the Ninth Circuit "on a collision course with several others."

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